Past winners of the Best De-Risking Strategy prize at the Financial News Pensions Awards have been companies that have comprehensively dealt with the financial risks in their schemes. This year’s winner was a little different.

The BT Pension Scheme has the largest liabilities in the UK, last actuarially valued in June 2013 at £46.5 billion. With a liability this size, BT is not likely to be able to pay an insurance group to take its whole scheme on, as others have done. Instead, it has to pursue alternative approaches, such as changing the nature of its liability into something more easily hedgeable.

During 2013, BT launched the UK’s biggest-ever pension increase exchange, or PIE, exercise – an offer to over 100,000 pensioners to swap part of their inflation-linked pension for a higher flat-rate pension. James Riley, a KPMG consultant who advised on the process, said: “The biggest previous such exercise might have involved about 10,000 people, so this is over 10 times larger than anything that’s been done before.”

BT won its category with an average score of 3.44 out of five, just ahead of BAE Systems, whose three bumper longevity swap deals last year garnered it a score of 3.36 among the judges. But if the size and ambition of the deal were enough to gain the judges’ attention, it was the determination of the company to do things by the book that may have proved convincing.

Paul Rogers, head of pensions risk at BT, said: “The idea with BT’s exercise was to give members additional flexibility and choice, while providing additional certainty to the pension scheme on future pension payments.”

The Pensions Regulator takes a rightly cautious view of such PIE deals. According to its guidance, “an offer is often set at below ‘cost-neutral’ terms in order to reduce an employer’s pension liabilities and, in this situation, there is a heightened risk that members will be worse off”.

However, what BT is trying to do is more sophisticated than this. Members were given a “balanced deal” offer, which means the absolute value of the option is greater or equal to the pension being given up, on a prescribed basis. As well as receiving an option guide and personal statement, pensioners could call a helpline and speak to an independent financial adviser.

Rogers added that the exercise was “designed to follow the principles of the pensions industry’s Code of Good Practice, and members have been provided with detailed information on the option, so they can make an informed decision”.

The purpose of the offer was better liability management, rather than liability reduction. Benefits in the BT Pension Scheme are largely linked to inflation through the consumer prices index. With few derivative or hedging products yet on the market tied to CPI, as opposed to the more established retail prices index, the exercise gave the pension scheme an alternative way to reduce its inflation exposure.

BT has not completed its PIE but the company says that more than 30,000 members have called the helpline so far and the exercise is expected to remove inflation exposure on a “significant proportion” of liabilities.